BOE Hasn’t Decided on Forward Guidance After Court Reviews

March 14 (Bloomberg) -- The Bank of England said it hasn’t
decided whether to provide forward guidance for monetary policy
as it published a response to reviews of its operations
commissioned by its governing body.

David Stockton, a former Federal Reserve official,
recommended that officials increase communication on the policy
outlook. His report on the BOE’s forecasting was published in
November following a lawmaker push for an inquiry as the central
bank prepares to take on powers to regulate banks.

“No firm decision has been reached at this stage on the
provision of information concerning the possible future path of
monetary policy,” the BOE said today. “This recommendation
will be reviewed as part of the changes intended to support the
forecast process.”

Governor-designate Mark Carney has promoted the idea of
guidance on longer-term policy, and has said officials aren’t
out of ammunition to drive an economic recovery. Now Governor of
the Bank of Canada, he’ll take over from Mervyn King in July.

“There is considerable enthusiasm to take forward many of
the options and ideas contained in the review,” the BOE said.
The bank is “committed to implementing material changes” in
its forecast process and how the forecasts are communicated.

The bank said it will provide more detail on the judgments
underlying its forecasts along with alternative scenarios and
will create an “enhanced role” for bank staff to challenge the
Monetary Policy Committee.

Recommendation Rejected

However, the bank rejected a recommendation to quiz
individual MPC members on their outlook for growth and
inflation, saying their views are already “fully taken into
account.” It also said there are “considerable benefits” to
focusing on the collective judgment rather than “highlighting
relatively small differences between individual members.”

In a separate review, Bill Winters had said the BOE should
consider returning to reserves averaging. The central bank said
today this was planned when market prices suggest a rise in its
benchmark interest rate is expected in the “near term.” The
BOE suspended its averaging framework for commercial bank
reserves during the financial crisis.

In response to another Winters recommendation, the BOE said
it will assess options before the end of this month for
regularizing tools such as the temporary Extended Collateral
Term Repo Facility that provides funding against the widest
range of collateral. BOE officials will also look at ways of
reducing the stigma associated with accessing services such as
the Discount Window Facility and making some liquidity tools
available to non-banks, such as central counterparties.

Former BOE Executive Director Ian Plenderleith, in a report
on so-called Emergency Liquidity Assistance, said it should
improve processes and ensure its “heightened level of
readiness” to crises doesn’t erode over time.

He recommended the BOE continue to explore the option of
funding foreign-currency ELA through swaps undertaken in the
market, or through its own and the government’s foreign-currency
reserves, should swap lines with other central banks no be
available. In response, the BOE said “contingency plans are
being developed and will be revisited annually.”